Manchester is currently facing a significant housing shortage, with the demand for new housing exceeding the current supply. In 2022, only 55.25% of the required level of housing was built, leaving many residents fighting for rentals or purchases. Could a new generation of property developers be the answer in the city?
More than merely introducing new construction projects to the market is required to tackle Manchester’s ongoing supply and demand disparity. However, the current surge in interest rates, reaching levels not seen since 2008, has impacted lending for builders and potential property buyers. As a result, 2023 presents favourable prospects for a fresh wave of property developers to seize opportunities and enter the Manchester market.
Last year, Manchester City Council unveiled a new housing strategy to deliver 36,000 new homes by 2032, giving them a target of 4,000 homes annually. However, in the city, only 1,790 were completed between 2021-2022, which is 55.25% less than their target. According to Manchester Councils Housing Strategy 2022-2032, there was a minimum shortfall of around 500 homes per year, highlighting that the city’s council identifies an inherent need for more dwellings.
Manchester has seen marginal increases in price growth over the last year, with the average price increasing by 9.46% from January to December 2022. The percentage increase would give the average property price a healthy £20,456 boost.
Regarding rentals, the scarcity of available housing in Manchester is driving a sharp increase in rental prices. Urbanbubble reports that rents have surged by up to 38% in some regions of the city in the past year.
On average, Manchester, Salford, and Trafford have experienced a 20% rise in rental rates over the same period. The combination of limited housing supply and high demand, with an expected population growth of 30,000 in the next six years, suggests that rental costs in the city are unlikely to decline any time soon.
The new population growth could see more build-to-rent (BTR) investments emerging. Last month McGoff Group began construction on a 237-home BTR development on the Rochdale Road site, which will see a mix of one, two and three-bedroom apartments on a former gasworks site, aimed to reach completion in 2025. The £50m development is not the first time McGoff has invested in this growing sector in the city.
In May 2020, the group successfully finalised the construction of Downtown, a £85 million development consisting of 374 apartments located on the banks of the River Irwell in Salford.
In February, Manchester’s leading property development company, Renaker, also began work to build a £130m BTR tower at the corner of Great Ancoats Street and Port Street that will provide 477 high-end private rental flats.
The BTR market is growing exponentially, with investment exceeding £1.1bn in Q1 2023, opening up opportunities for new property investors in Manchester. However, BTR is not the only way new developers can enter the market. There is an easier option for novice investors, such as ‘property flipping’.
Finbri, an expert UK bridging and development finance company, surveyed over 1,000 property investors, revealing exciting insights. The study found that 45% of investors plan to invest in property in 2023. However, regarding “property flips,” only 12.09% occurred in the North West, whereas the Midlands accounted for 17.48% and London 25.27%. These findings highlight the contrasting trends in property refurbishment between different regions and spotlight potential opportunities.
The Manchester property market has offered good investment opportunities in recent years. The city has experienced significant economic growth, urban regeneration, and a rising population, all of which have contributed to the increasing demand for housing. Manchester’s thriving business sector, vibrant cultural scene, and renowned universities make it an attractive location for investors.
Moreover, the city has witnessed various infrastructure developments, such as expanding transport networks and constructing new commercial and residential projects.
If you’re prepared to enter the UK property investment arena, joining the ranks of 2.5 million other investors, you can tap into a market that has consistently delivered solid returns over the past two decades. Now could be the ideal time to seize your share of the market and potentially reap the benefits it has to offer.
What are the advantages of investing in property?
Investing in property development has two significant advantages. Firstly, there is the possibility of capital appreciation. The value of your property assets can improve over time, allowing you to reap substantial financial benefits. Following a property development strategy that involves buying homes for renovation or refurbishment and reselling them for a profit may provide quick returns. The practice, known as property flipping, can be highly profitable. According to Bridging Market’s 2022 poll, 50% of property flips made gains ranging from £10K to £50K, while only 1% lost money.
The second consideration is income generation. Choosing to keep ownership of your buildings and lease them to tenants can offer you a consistent income source. According to a recent Finbri study, rental rates are growing across the United Kingdom. Rental rates in certain places increased by 14.6% in the year leading up to September 2022. This expansion was most noticeable outside of London, notably in Northern Ireland. This data indicates a high potential for rental income and a robust market outside the central city.
What are the initial steps to begin your initial property development project?
Ensuring a healthy profit margin on your first assignment requires simplicity.
Undertaking a basic property development venture offers several benefits:
- Lowered Risk: It poses a lower risk compared to intricate projects.
- There is still a chance to generate a decent profit.
- The learning curve is quite manageable, making it easier for beginners to learn.
- Easy Financing: Smaller projects are more likely to be approved for financing.
- Enhanced Prospects: This industry presents more extensive possibilities.
- You can save money by using your trade skills and independently performing some tasks.
Acquiring a property for renovation, to sell or rent it out, is among the simplest forms of real estate development. Novice investors are occasionally attracted to real estate requiring prompt repairs and aesthetic upgrades.
Starting with residential homes is an excellent option for those new to property development. Their approach leverages your knowledge of buying and renovating homes without needing expertise in commercial, storage, office, or student housing sectors.
Aiming for a profit margin of 20% or more when engaging in a fix-and-flip venture is advisable. Be ready to leave if the profit margin is insufficient. Your initial profit is determined by the price you pay for the purchase, as you have control over it. The market determines the sale price.
Professionals recommend that individuals who aspire to become developers should follow these steps:
In property development, every asset has a maximum price in an open market transaction, known as its “ceiling value.”
Consider Exploring Up-and-Coming Areas: Rather than purchasing the least attractive property on a well-established street, consider researching the next promising emerging neighbourhood or street.
Enhancing Property Value: Real estate professionals suggest that incorporating open-plan living areas can increase the value of a property more significantly than simply adding extra rooms.
Plan for the Unexpected: Define your core strategy, whether it involves selling or renting out the investment property, and explore alternative options as contingency plans in case your primary strategy does not yield the desired outcomes.
Exploring Rental Options for Your Investment Property
When considering rental options for your investment property, there are various approaches to explore.
Unless significant structural renovations are needed, a buy-to-let mortgage is a popular financing option for purchasing a property if you don’t plan to keep it. The expected rental income and the property’s location play a significant role when making development decisions. It is crucial to evaluate whether the property has enough bedrooms to accommodate families, young professionals, or students.
Option 1: Leasing to an Individual Tenant, Pair, or Household.
Many new investors prefer a single lease agreement with one tenant, a couple, or a family. This method ensures that the monthly rental income will be sufficient to cover your buy-to-let mortgage payments and any other administrative and maintenance expenses, leading to a profitable outcome. Minimising management costs can be achieved by managing a property with a single tenant, and this also increases the chances of the tenant staying for a longer duration, which in turn provides stability for your property.
It is essential to consider the possible risk of vacancy periods since they can substantially affect your yearly profits if the property stays unoccupied and generates no revenue.
Option 2: House in Multiple Occupation (HMO)
You may consider converting the property into a House of Multiple Occupation (HMO) as another option instead of renting it to a single tenant.
The idea is to offer all tenants communal kitchen, living and bathroom facilities while renting out individual rooms within the property. By negotiating leases on an individual basis, it may be possible to boost the amount of monthly rental income significantly.
Managing an HMO could result in increased costs for upkeep and administration. Managing bigger HMOs with five or more occupants can result in higher profits but also involves more administrative duties. Coordinating essential upgrades and repairs in such situations can be more challenging. Moreover, you can still earn rental income even if your HMO or Large HMO is partially occupied.
It is essential to conduct comprehensive research and comprehend the planning and construction prerequisites for HMOs established by the local authorities before commencing any HMO project.
Getting acquainted with these regulations can assist you in navigating the process with greater efficiency.
Option 3: Selling the Property After Renovation
Another feasible choice is to sell the property once it has been renovated. It is essential to consider the possible consequences of obtaining a mortgage for an extended period if you intend to sell the property. It is crucial to comprehend the potential impact of early repayment fees (ERFs) before deciding to pay off your mortgage early, as they can significantly affect your overall profit.
If you need funding for a project immediately, consider looking into short-term capital options like bridge financing or bridging loans. These loans provide Repayment flexibility, enabling you to repay the loan once your projects are finished.
The Essential Phases for Property Development Success
To excel as a property developer, it’s essential to become proficient in three key stages: sourcing, feasibility, and planning; financing and exit strategy; and construction, scheduling, and project management.
Phase 1: Sourcing, Viability, and Preparation
In the sourcing stage, locating a property at the most favourable price and evaluating its potential with a discerning perspective is crucial. Conducting thorough market research is critical to comprehending the maximum house prices, rental rates, and upcoming areas in the locality. Rather than choosing the least desirable property on a desirable street, you may want to consider a less expensive house nearby that would attract potential buyers or renters.
Phase 2: Financing and Exit Strategy
To undertake a property development project, obtaining funding and creating a plan for exiting the project is essential. It is advisable to seek the assistance of a proficient finance broker, as conventional banks may not offer the desired rates and flexibility. One can consider different funding choices, like buy-to-let mortgages, bridging finance, development finance, or second charges. Knowing the lending criteria and costs can prevent future issues. A well-defined plan for exiting is essential to recoup your investment and achieve profitability by selling or keeping the property as a rental asset.
Phase 3: Construction, Scheduling, and Project Management
During the construction phase, it is crucial to have efficient management and strict adherence to the schedule. Planning carefully and managing projects diligently is essential to avoid escalating financing costs due to delays. You can hire a principal contractor, engage a project manager, or self-manage depending on the scale and expertise of the project. Thoroughly evaluate the trades required, any potential scheduling issues, and the option of gaining extra skills to handle expenses efficiently.
Planning and assessing every aspect of your development project is crucial. Evaluate the trades required, possible scheduling overlaps, and chances to enhance your skills to decrease dependence on outside contractors. Create a detailed schedule for each phase to estimate how long it will take.
Incorporating these considerations and developing a comprehensive strategy can help you navigate the property development process effectively. By addressing housing demands, you can also maximise your investment opportunities. Prepare yourself for a fulfilling experience in the field of property development.
